Well, this has all happened remarkably quickly and despite US and UK intelligence making it clear that this was what Putin intended to do, I don’t think many rational people really thought he would actually go ahead with it. The main reason being that the risks to his country economically and more importantly (to him anyway), his domestic reputation and his legacy, are so great.
The United Nations have made it clear, ‘He must fail, and he must be seen to fail.’ Faced with this level of international resolve, it seems remarkable that he believes he can win the long game. His success in annexing Crimea in 2014, is one thing but invading a sovereign nation, is something completely different and he may have bitten of more than he can chew this time.
I received the following update from Scottish Widows this afternoon and although it doesn’t really add anything that I haven’t covered in previous missives, I thought you might like to hear it from someone else – in case you thought it was just me.
“Ukraine: Focussing on the Long-Term, Despite Market Uncertainty
In a televised speech at 05:55 Moscow time (02:55 GMT) on Thursday 24th February, the president of Russia, Vladimir Putin, announced a "military operation" in Ukraine's eastern Donbas region, with reports of tanks and troops pouring into Ukraine along its eastern, southern and northern borders.
This marked the start of a Russian invasion of Ukraine and represents a significant and serious event for European and global relations. Aside from the tragic human consequences of the unfolding events, the news of Russia's invasion of Ukraine has other wide-reaching effects, with the volatility in financial markets one of the immediate and visible impacts for investors globally.
The first day of the invasion saw equity market declines globally, with the FTSE 100 Index of largest UK stocks down almost 4% and the DAX index of the top 40 stocks in Germany falling by a similar amount. The Russian MOEX Index dropped by over 30%. Crude oil markets also reacted, with the price of Brent crude - a commonly used benchmark of oil prices globally - rising above US$100 for the first time in over seven years.
In early trading on Friday 25th February, several equity markets had rebounded somewhat, with the FTSE 100 and the DAX 40 Indices both up by around 3.0%.
Volatile times
Over the past few months, in the runup to Russia's invasion, volatility had already returned as a feature of investment markets. Worries included the trajectory of global economic growth and the pressure on major central banks to raise interest rates to curb inflationary pressures. The uncertainty caused by the start of hostilities in the Ukraine has added to this bout of market turbulence.
While the catalyst for current market reaction is clearly very different from some of the more recent and sizable market shocks - such as the Covid-19 pandemic or the global financial crisis - there is the potential for these to be considered when looking for likely comparisons. It's worth recalling the sharp market falls in shares and bonds across the world in March of 2020, as the Covid-19 pandemic unfolded, amid the initiation of lockdowns and the shuttering of industries in many countries globally. We have since seen markets and economic growth stage robust recoveries, even though the pandemic is not over. To put it into context, global equity markets (as measured by the MSCI World Index) posted an incredibly strong return of around 23% in sterling terms over 2021, and similarly robust returns in 2019 and 2020 calendar years.
Multi-asset investing
In our view, market shocks highlight the important role of diversified multi-asset portfolios, where bonds, equities and other asset classes can complement each other. Many studies have shown that by having diversified portfolios you invariably spread risk, without reducing potential returns. In part, multi-asset portfolios are designed to benefit from the basic premise that different asset classes tend to perform in different ways in a variety of market conditions. For example, it may be the case that when there are losses in one asset these may be offset with gains in another. Shorter-term volatility in investment markets can seem sudden and even worrying, but for longer-term investors we believe it is important to avoid knee-jerk reactions and remember the benefits of having a diversified portfolio that looks to the long term.”
I hope the above is helpful but, as always, if you would like to discuss this or any other finance related matter, please do not hesitate to contact me.
With kind regards,
Yours sincerely
Graham Ponting CFP Chartered MCSI
Managing Partner
